CA delays results, warns of surprise loss

MichaelPaige

LOS ANGELES (MarketWatch) - CA Inc. on Tuesday delayed its quarterly results and warned that it would post a surprise loss after finding that it incorrectly accounted for sales commissions, dealing a fresh blow to the management software firm that has worked to turn around its business and put a multibillion-dollar accounting scandal behind it.

The company formerly known as Computer Associates said it needed the additional time to carry out work surrounding its sales-commission expense and income taxes before finalizing its fiscal fourth-quarter results. CA
CA, -0.86%
also said it would restate results for the preceding fiscal third quarter and it postponed an analyst day that had been planned for next week.

"Clearly we are disappointed that what would have been a solid year was impacted by execution issues relating to commissions," Chief Executive John Swainson said. "We are making changes to ensure that these problems do no recur," he added.

A new sales-commission plan failed to appropriately align commission payments with the Islandia, N.Y., firm's overall performance, it said. CA estimated its sales commissions for the fiscal year would be about $70 million more than originally anticipated as a result.

CA will report a material weakness in its financial controls related to the "forecasting, processing and monitoring of sales commissions," it said, noting that its review is ongoing and further adjustments may be needed.

The company's stock fell to a new yearly low on the news, sinking as low as $20.80. By the closing bell, shares had clawed their way back from the day's worst levels to finish off 65 cents, or 2.9%, at $21.51.

For the fiscal fourth quarter, CA said it now expects a net loss of 7 cents a share on revenue of $947 million. Bottom-line results for the period ended March 31 are expected to benefit by 3 cents a share from the firm's restatement of the prior quarter's results.

The company put its operating earnings, which exclude some items, at 14 cents a share for the three-month period.

The latest financial update came just more than a month after CA already warned results would miss earlier expectations due to a revenue shortfall related to acquisitions and as it contended with a slow start to bookings for the period and higher expenses.

In April, the company cut its net per-share profit forecast, predicting results would range from break-even to a profit of 2 cents a share, with operating earnings of between 14 cents to 16 cents a share. At the time, the company put its revenue at $940 million to $950 million. See archived story.

Wall Street analysts, on average, were looking for a profit before items of 21 cents a share on revenue of $970.1 million, according to Thomson First Call.

For the fiscal third quarter, the firm said it would restate results to include around $26 million of additional commission expense that it should have recorded during the period. The move is expected to reduce previously reported per-share results for the period by around 3 cents.

Latest issue follows recent management departures

The commission-related gaffe followed several recent senior management departures, including the resignation of Robert Davis as chief financial officer earlier this month and last month's exit of Jeff Clarke as chief operating officer. See archived story.

Davis' resignation was by "mutual agreement" and Clarke left to lead the travel-distribution services business of Cendant Corp.
CD, +20.00%
in New York. See archived story.

Yet the latest news suggests that "those who have departed were likely pushed out to some degree," according to Cowen & Co. analyst Walter Pritchard.

A slower-than-hoped-for sales transition and the flawed compensation program fall on the shoulders of the CFO, operating chief and head of worldwide sales, Pritchard told clients. He rates the stock neutral and sees a lack of positive catalysts on the horizon to drive shares higher.

Todd Weller, an analyst at Stifel Nicolaus, said the recent executive departures "create concern that the company is in a messy situation with respect to its ongoing restructuring efforts."

"Overall, we believe that two consecutive disappointing quarters for CA continue to point to growth challenges at the company," Weller told clients. "In addition, today's announcement illustrates that the company's turnaround effort is clearly taking longer than expected."

The Stifel Nicolaus analyst rates the stock hold.

The company plans to release final results for the latest quarter when its files its annual report with the Securities and Exchange Commission.

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